Struggling UK lender Metro Bank in talks to sell loans
This is part of its efforts to strengthen finances after major error left a hole in its balance sheet
Bengaluru — British lender Metro Bank is in talks to sell a portfolio of loans in its latest attempt to strengthen its finances after an accounting error hammered its shares.
The major loan book error in January left a hole in Metro’s balance sheet and wiped more than £1.5bn off its market value.
Sky News reported on Sunday that Metro was readying a £500m deal to offload a mortgage portfolio back to US hedge fund Cerberus Capital Management.
Metro said in a statement on Monday it was in talks to sell a loan portfolio but gave no details on the type of loans or potential buyer.
In February 2018, Metro agreed to buy mortgage debt from several Cerberus-linked companies for £523m, after buying a mortgage portfolio from the US firm in June 2017 for £596.7m.
While Metro, led by founder and chair Vernon Hill, managed to raise £375m in an oversubscribed share sale in May, the stock remains down 72% since the start of the year.
John Cronin, financials analyst at broker Goodbody, said selling loan assets made sense but he was cautious about the impact on future profitability.
“Balance sheet shrinkage is never ideal in the case of a company that has attracted an investor base owing to its high growth prospects. However, capital sufficiency trumps growth and profitability considerations at the current time,” he said.
Metro shares were up 3.7% in early trade, among the biggest gains on Britain’s FTSE mid-cap index.
Cronin told clients in a note that any bounce in the shares could be a good opportunity to lay bets on future falls. “Any excitement that drives share price gains ... in response to this [Sky] news article should be seen as an opportunity to build on a short position,” he wrote.